CITIC SEC: Can US stock AI resist high interest rates?

CITIC SEC released a research report stating that the birth of the AI market in the US stock market occurred in a high-interest rate environment. The asset performance and tangible investment data since 2023 show that AI has shown continuous resilience in the face of high interest rates, and the short-term adjustment after the non-agricultural period has not changed this fact. Looking back at history, the Internet sector has experienced continuous interest rate shocks, providing a key revelation that when the market trading technology revolution infrastructure is laid, high expectations for future returns can override interest rate shocks. At the same time, high interest rates put pressure on other sectors, and "new economy" assets obtain a scarcity premium based on growth narratives and capital expenditure support. The bank believes that when AI capital expenditure shifts from internal cash flow support from large-scale cloud vendors to external financing dependence, interest rates will no longer be just a valuation variable, but will become a financing discipline variable. Currently, it is at the initial stage of entering financing shocks due to interest rate constraints. However, combining the cash flow and leverage levels of large-scale cloud vendors, AI financing cost pressures, cumulative debt levels, and market attitudes towards AI capital expenditures, the current US stock market AI is still far from the financing pressure level experienced by the Internet sector, and macro interest rate shocks can still be absorbed. The main points of CITIC SEC are as follows: Does the recent adjustment in the US stock market indicate that AI assets are becoming sensitive to interest rates again? The AI market in the US was born in a high-interest rate environment, and the asset performance and physical investment data since 2023 prove that AI has shown continuous resilience in the face of high interest rates, and the short-term adjustment after non-agriculture has not changed this fact. The market performance on June 5th shows that interest rate shocks can quickly compress market risk appetite and AI asset valuation in the short term, but in the long run, the sensitivity of AI to interest rates is significantly lower. Internet sector mirror: How does the technological revolution temporarily blunt interest rate shocks? On one hand, as the basis of market trading technology revolution infrastructure is established, high expectations for future returns outweigh interest rate shocks; on the other hand, high interest rates put pressure on other sectors, and funds concentrate on "new economy" assets. From 1999 to early 2000, the Internet sector experienced continuous interest rate shocks, but the Nasdaq continued to rise in a high-interest rate environment, and the sensitivity of Internet assets to interest rates decreased temporarily. The experience of the Internet sector shows that interest rate shocks can cause short-term adjustments in the US stock market, but during the phase of the strongest technological revolution narrative, the fastest capital expenditure, and the most concentrated funds in the technological revolution infrastructure, interest rate shocks do not end the market trend. When will the US stock market AI rally face macro interest rate constraints again? When the expansion of AI infrastructure shifts from internal cash flow support from large-scale cloud vendors to external financing dependence, interest rates will no longer be just a valuation variable - they will become a financing discipline variable. The Internet sector ultimately did not escape interest rate constraints, and in the face of high interest rates, the financing structure and profitability quality issues of Internet sector companies were eventually exposed. Based on the history of the Internet sector, the bank proposes a two-stage framework of interest rate shocks (valuation shocks and financing shocks), and the bank believes that we have now entered the second stage, where financing shocks have become a new variable in market pricing. The first signal comes from the ratio of capital expenditures to operating cash flow of large-scale cloud vendors approaching 100%. The second signal comes from recent media reports on large-scale cloud vendors seeking external financing. The third signal is that the market's response on June 5th under interest rate shocks reveals that the market is concerned not about the absolute level of interest rates, but about the impact of high interest rates on the sustainability of AI CapEx financing. Combining the current pressure of large-scale cloud vendors' cash flow (equivalent to the peak level of the Internet sector at 46%, the same below) and leverage levels (14%), AI financing cost pressures (68%), cumulative debt levels (7%), and market attitudes towards AI capital expenditures (50%), the bank believes that the current US stock market AI still has a distance to go before reaching the financing pressure level experienced by the Internet sector, and macro interest rate shocks can still be absorbed. Risk factors: US inflation and interest rate hikes exceed expectations; external financing costs for large-scale cloud vendors rise more than expected; AI-related companies fail to meet profit expectations.